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The partial federal shutdown is starting to nibble at the economy. The longer it goes on, the bigger the bite it will take out of growth.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll also look at China’s record trade surplus with the U.S., how slower growth in China is tripping up U.S. companies, and the upcoming Brexit vote. Let us know what you think by replying to this email.
CLOSED FOR BUSINESS
The partial federal government shutdown, now the longest on record, is curtailing infrastructure projects, food inspections and economic data. But on a more micro level, it is showing signs of disrupting commerce as hundreds of thousands of federal workers missed out on their first payday of the closure late last week, Josh Mitchell and Sharon Nunn report.
The shutdown isn’t derailing the U.S. economic expansion, now in its 10th year, but it is slowing growth. Economists estimate the furlough of 380,000 federal workers costs $1 billion to $2 billion a week in lost output. That’s a rounding error in a $20 trillion economy, but it accumulates over time. Already, some economists are revising down 1st-quarter growth estimates.
WHAT TO WATCH TODAY
The partial U.S. government shutdown enters its 24th day. That won’t affect the flow of economic data Monday but later in the week we’ll miss two key indicators: December retail sales and housing starts.
President Trump delivers remarks at the American Farm Bureau Federation’s 100th Annual Convention at 11:40 a.m. ET. Trade policy is a key concern for U.S. farmers.
Small irony: Federal offices in the Washington, D.C., area are closed because of snow.
TOP STORIES
SNOWBALL EFFECT
China’s trade surplus with the U.S. hit a fresh record last year, as robust American demand for Chinese goods overwhelmed Trump administration tariffs. But figures from December are starting to tell a different story: China’s exports to the U.S. fell 3.5% on the year, significantly underperforming shipments to Europe in the final month of 2019. Overall, Chinese exports were down 4.4%. The upshot: the trade conflict is finally starting to hit China where it hurts. Together with faltering imports, weak retail sales and reports provincial governments are delaying tax changes that might hit employment, the data suggest China’s job market is starting to feel the pressure, Nathaniel Taplin writes.
IF CHINA SNEEZES, WILL U.S. FIRMS CATCH COLD?
When Apple said China’s slowing economy contributed to its late-year sales slump, the news rattled the stocks of other major U.S. companies. Now, as American firms prepare to report their quarterly earnings, China’s impact will be revealed. The amount of damage is likely to depend on such factors as who the company’s customers are and how much competition it faces in China, Inti Pacheco and Theo Francis write.
“I certainly expect other companies that sell to the top end of the Chinese consumer market to be under a bit of pressure,” said Brad Setser, a senior fellow at the Council on Foreign Relations. “Every indicator in China has been below expectation.”
PROFIT WARNING
Already, the U.S.’s biggest public companies are warning that their earnings may not be as strong as they hoped this year. Firms in the S&P 500 were projected back in September to report fourth-quarter earnings growth of 17% from the year earlier. But dimmer expectations for global growth and disappointing holiday sales have forced many companies to slash their forecasts, pushing the estimated earnings-growth rate for the quarter closer to 11%, Akane Otani reports. The drop-off is the latest sign that U.S. corporations, from retailers and airlines to phone makers, are losing momentum after several quarters of standout growth.
AUTO INDUSTRY HAS THE SNIFFLES
The U.S. auto industry is getting yanked in different directions by an unbalanced global economy. U.S. sales last year topped 17 million vehicles for an unprecedented fourth straight year. But good news is being tempered with flashing yellow lights overseas. Sales in China—by far the world’s largest car market—likely contracted last year for the first time in decades. Ford Motor Co. and Fiat Chrysler Automobiles swung from profits to red ink there in recent quarters. General Motors saw sales sink 25% in the fourth quarter.
Big question: Can the U.S. keep bucking the slowing global trend? Many forecasters see U.S. sales falling short of 17 million vehicles this year—still historically high, but a level that would mark only the second year-over-year decline since the 2007-2009 recession.
BREXIT UNCERTAINTY
British lawmakers are set to vote Tuesday on the terms of the divorce deal that Prime Minister Theresa May has spent two years hammering out with the European Union. The vote, which Mrs. May looks set to lose, is likely to prolong the uncertainty around Brexit just over two months before Britain is due to leave, Joanna Sugden reports.
QUOTE OF THE DAY
While China’s economy isn’t facing an imminent collapse, neither is it in a particularly good place. Growth in 2019 is likely to be weaker than in 2018 and this will play a significant role in the coming global slowdown.—Neil Shearing, chief economist at Capital Economics
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The Democrats’ Clinton-Obama era is dead. “No matter who takes the Democratic nomination in 2020, they will speak for a radicalised party in quest of the new New Deal. They owe a debt of gratitude to Donald Trump. However much resurgent liberals detest America’s 45th president, they can thank him for sweeping away the mindset of systematic caution that has mesmerised Democratic leaders for a generation,” The Financial Times’ Edward Luce writes.
Fox talk show host Tucker Carlson has a new take on capitalism that’s winning praise from the left: “Any economic system that weakens and destroys families is not worth having.” Washington Post columnist Christine Emba says Mr. Carlson “has delivered a remarkably correct opinion to kick off 2019.”
UP NEXT: TUESDAY
The New York Fed’s Empire State manufacturing survey for January is expected to tick up to 11.0 from 10.9 a month earlier (8:30 a.m. ET)
The U.S. producer price index for December is expected to slip 0.1% from a month earlier. Excluding food and energy, the index is expected to rise 0.2%. (8:30 a.m. ET)
European Central Bank President Mario Draghi presents the ECB’s annual report at 10 a.m. ET.
The Minneapolis Fed’s Neel Kashkari speaks on the regional economy in Rochester, Minn., at 11:30 a.m. ET, the Kansas City Fed’s Esther George speaks on economy and monetary policy at 1 p.m. ET, and the Dallas Fed’s Robert Kaplan speaks in Plano, Texas at 1 p.m. ET.
U.K. lawmakers are scheduled to vote on Prime Minister Theresa May’s Brexit deal.
from Real Time Economics https://on.wsj.com/2Ftwa40
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